In theory, as an old-world type economy and like most of its contemporaries, Germany should be struggling out of the after-effects of the global financial crisis.
But the ‘strongman’ of Europe has been thriving while its competitors are scrambling, and a recent study suggests its ‘Hidden Champions’ of small medium enterprises (at least by German standards) is a large part of the reason for its ongoing success.
These companies have defied a strong Euro, even while ‘Made in Germany’ has made its products expensive on world markets.
An analysis of about 1,130 Hidden Champions reveals important lessons – many of which New Zealand could well copy.
1. Hidden Champions strive for world market leadership to become No. 1 in the world in their markets/segments
2. Market definition is an important part of strategy development, usually leading to narrowly defined markets, both from a customer and technology perspective and a highly focused strategy
3. Specialisation in product and know-how is combined with global selling and marketing. They serve the target markets through their own subsidiaries and do not delegate the customer relationship to third parties
4. Hidden Champions are very close to their customers, in particular their top customers. They are value, not price oriented
5. They are highly innovative in both products and processes, not only confined to technology. Innovation activities are globally oriented and continuous
6. The overall company orientation is not one-sided but both technology and market driven
7. Hidden Champions create competitive advantages in product quality and service. They are close to their top competitors and defend their position ferociously
8. They rely on their own strengths. They mistrust strategic alliances and outsource less than other companies. Their value chains are deep. They see the foundations of their competitive superiority in things which only they can do. Together with lesson 2, their strategies could be defined as “deep rather than wide”. Deep in their value chain, not wide in their coverage of different markets with different needs
9. Hidden Champions have very strong corporate cultures associated with excellent employee identification and motivation. Selection for jobs is sharp
10. Their leaders are very strong and stay at the helm for decades
Some of Germany’s unique embedded cultural and educational attributes would be impossible to replicate in New Zealand.
Yet, its export orientation to other rich countries is worthy of replication by this country.
This also includes value-added food products, which as reported in an earlier sticK story (see here), is one small feature of German success.
The Hidden Champions are characterised as being ‘global medium enterprises’, positioned between the widely researched big publicly-listed multinationals and the traditional privately-held domestically-focused SMEs.
The study concludes its assessment of the Hidden Champions with a summarisation of their management model:
• Family ownership and cooperative corporate cultures combined with outside professional management
• Global market dominance through positioning in niche markets and thus exploiting and enhancing resources and capabilities on a global scale
• Continuous endeavour to raise operational effectiveness of all major processes and functions